Definition
CAC, or customer acquisition cost, calculates the average expense a business incurs to gain a new customer over a set period. It integrates spending on marketing, sales, and other acquisition channels. Understanding CAC helps companies ensure profitability and decide how much to invest in attracting new customers, especially in fast-changing markets.
Why Use
- Evaluates efficiency of marketing and sales strategies.
- Assists with budgeting for profitable customer growth.
- Helps compare performance between acquisition channels.
- Supports pricing and customer lifetime value decisions.
Core Concepts
- Total acquisition cost: all marketing and sales expenses.
- Number of new customers: period-specific count.
- Customer lifetime value: profit from each new client.
- Optimisation: reducing CAC while increasing impact.
- Attribution: assigning costs to correct touchpoints.
Examples
Example: If a company spends £2,000 on marketing and sales and acquires 20 new customers, CAC = £2,000 ÷ 20 = £100 per customer. This means it costs £100, on average, to acquire each new customer during that period.
Common Pitfalls
- Excluding relevant indirect costs from calculation.
- Comparing CAC across different industries or models.
- Focusing only on short-term CAC reductions.
See Also
Related concepts: Lifetime Value, Conversion Rate, and Lead Scoring all add depth to CAC analysis.
